Wayne K. Spear: The objective economic case against Granny and Gramps

The objective economic argument against Granny and Gramps

In the days and weeks following Prime Minister Harper’s Davos speech, there’s been ample commentary, provoked by the following:

“As I said earlier, one of the backdrops for my concerns is Canada’s aging population. If not addressed promptly this has the capacity to undermine Canada’s economic position and, for that matter that of all western nations, well beyond the current economic crises. Immigration does help us address that and will even more so in the future. Our demographics also constitute a threat to the social programs and services that Canadians cherish. For this reason, we will be taking measures in the coming months. Not just to return to a balanced budget in the medium term, but also to ensure the sustainability of our social programs and fiscal position over the next generation. We have already taken steps to limit the growth of our health care spending over that period. We must do the same for our retirement income system.”

To some ears this prefigured a budgetary assault on grandma and grandpa, the spiteful Harperites ready to press every layabout 65 to 67- year-old into forced labour, for the greater good. Kevin Page, the parliamentary budget officer, was sufficiently stirred to report that It’s All Good, People. According to his math, the cost of Canada’s pension system will indeed rise, from the present 2.2% of GDP to 3.2% in 2036-37. Even further down the road, about seventy years ahead, costs will return to current levels. The reason, as any fool could guess, is purely demographic: there are today proportionally more old people — the baby boomers — than there are going to be in the next couple generations. Any balancing of this will probably have to be made up through immigration levels, birth rates being unlikely soon to change.

If you read Harper’s Davos speech, you’ll see it’s all there: the changing demographics, immigration, the need for reform. Even the fiscal soundness of the pension system is affirmed. The fortunate thing about demographics is that you can make decent predictions decades ahead. A big whack of young people today is a big whack of retirees in future. The Prime Minister has only said what demographers well know. Yet for some reason folks are bracing for the pension sky to fall, even though the Prime Minister acknowledges the fiscal soundness of the system and polls show overwhelming public resistance to OAS reform. Curiouser and curiouser.

Reading about this issue I was reminded of the first Canadian universal welfare program, the so-called “baby bonus.” Introduced after the Second World War, this modest monthly stipend was designed to encourage and assist anxious young families in the years following war and economic depression. I well recall my mother’s occasional references to this state allowance, when the topic of the family budget would come up. To be sure, that was a different time — but the baby bonus and the OAS are I think connected in several respects. Both are inherently matters of demographics, and both derive from the egalitarian logic of a previous era, the universality of social programs and benefits partaking of an “all in the same boat” ethic which itself followed logically from the collective sacrifices and efforts of the war.

After a generation, the seams of that wartime and depression ethic were giving way. One of the most vigorous attacks on universality, specifically in relation to senior benefits, was penned in the U.S. by the British journalist Henry Fairlie. In a 1988 New Republic piece called “Talkin’ ‘Bout My Generation,” Fairlie attacked the powerful retiree lobby and outlined the case for means testing and needs-based benefits. He was probably right to do so, the American entitlement system having uncoupled itself from fiscal logic. A similar discussion has yet to occur in Canada, for both fiscal and political reasons. Fortunately for Canadians, pension policy appears so far to have been informed less by the American-styled politics of interest group pressure and vote-seeking and more by objective economic analysis. That’s how it should stay.